Trinity Biotech's (TRIB) CEO Ronan O'Caoimh on Q1 2016 Results - Earnings Call Transcript

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Trinity Biotech PLC (NASDAQ:TRIB) Q1 2016 Earnings Conference Call April 19, 2016 11:00 AM ET


Joe Diaz - Lytham Partners

Ronan O’Caoimh - CEO

Kevin Tansley - CFO

Jim Walsh - Business Development Director


Larry Solow - CFA

Nicholas Johnson - Raymond James

Bill Bonello - Craig-Hallum

Walter Schenker - MAZ Partners

Ross Taylor - Somerset Capital

Chris Lewis - Roth Capital Partners

Larry Solow - CJS Securities


Good morning and welcome to the Trinity Biotech First Quarter Fiscal Year 2016 Financial Results Conference Call. All participants will be in listen only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Joe Diaz at Lytham Partners. Please go ahead.

Joe Diaz

Thank you, Amy, and thank all of you for joining us to review the financial results of Trinity Biotech for the first quarter of calendar 2016, which ended on March 31, 2016. With us on the call representing the Company are Ronan O’Caoimh, Chief Executive Officer; Kevin Tansley, Chief Financial Officer; and Dr. Jim Walsh, Business Development Director. At the conclusion of today’s prepared remarks, we will open the call for question-and-answer session.

But before we begin with those prepared remarks, we submit for the record the following statement. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will, and other similar statements of expectation identify forward-looking statements.

Investors are cautioned that such forward-looking statements involve risks and uncertainties including, but not limited to, the results of research and development efforts, the effect of regulation by the United States Food and Drug Administration and other agencies, the impact of competitive products, product development, commercialization and technological difficulties and other risks detailed in the company’s periodic reports filed with the Securities and Exchange Commission

Forward-looking statements reflect management’s analysis only as of today. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements.

With that said, let me turn the call over to Kevin Tansley, Chief Financial Officer, for a review of the results. After Kevin’s remarks, we will hear from Jim Walsh, on product development issues and Ronan O’Caoimh, will wrap up the prepared remarks with his perspectives on the quarter. Kevin?

Kevin Tansley

Thank you Joe and I’ll today take you through the results for quarter one 2016. Total revenues this quarter were $23.5 million and this compares $25.2 million in quarter one of 2015. However revenues this quarter continue to be impacted by currency movement, strengthening of US dollar has served to reduce the dollar equivalent while Euros starting and Brazilian real revenues.

As you all have seen from the press release we have restated the Q1 revenues on a constant currency basis, in order to put this into better context. Ronan will provide more details on the revenue for the quarter later in the call so I’ll move on now and discuss the other aspects of the income statements. As you will see from our press release, we’re now showing a gross margin of 43.1%.

While this is a reduction on the 47.9% in quarter one last year, it is consistent with the margin reported in quarter four of 2015. Reduction in gross margin in comparison to the equivalent quarter last year is principally due to couple of factors. Firstly this quarter we had lower production levels due to lower revenues this quarter, even these lower production volumes this results in the level of under observes fixed cost namely production, labor and overheads.

The result was that these unabsorbed costs then hit the income statement this quarter in effect increasing our cost of sales and thus reducing our gross margin. The second factor then was the lower level HIV sales and this is significant as on average these represent higher margin sales growth. Moving on to our indirect cost, our R&D expenses increased from 1 million to 1.1 million this quarter, meanwhile our SG&A expenses have increased in the quarter from 6.3 million in equivalent cost of our last year to almost 7 million this quarter.

Our SG&A expenses tend to fluctuate on quarter-on-quarter due to the timing of certain expenses particularly discretionary sales and marketing costs. In the last four quarters SG&A expenses have average $6.6 million and this quarter’s expense is slightly above that run rate due primarily to non-cash foreign currency retranslation charges.

Our operating profit for the quarter was $1.8 million and this compares to $4.3 million in quarter one 2015, this reduction is largely driven due to the combined impact of the lower revenues and lower gross margins which I’ve mentioned earlier.

Moving on to our financing cost which includes the impact of the conversable notes that we issued last year, it should be noted by the way that this is the last quarter where the comparative figures do not includes the impact of exchangeable note and they were issued in early quarter two last year. Our financial income for the quarter was 220,000 versus virtually zero on the comparative period, this reflects our higher level of interest earning cash deposits.

Financial expenses for the quarter were 1.2 million the vast majority of which relates to cash interest in relation to convertible note for which there was no equivalent to last year. Similar the non-cash financial expenses of $2 million also relates entirely to our convertible note with the non-cash interest of approximately 200,000 and a loss of a 1.8 million being recorded for the change in the fair value of the derivative embedded in the notes.

Our tax charge for the quarter was 182,000 and this represents an effected rate of 9% after adjusting for loan notes. As in previous quarters we continue to benefit from the R&D, tax credit and number of jurisdictions in particular Ireland, US and Canada. The net results for the quarter is a loss of 1.3 million, however if we were to exclude the impact of the non-cash items related on exchangeable note the profit for the quarter will be close to 700,000.

So whilst the basic EPS is a loss of $5.8 per share the EPS adjusted for non-cash items is a profit on $2.9. Fully diluted EPS would ordinarily be $6.4 however according to IFRS rules the diluted EPS cannot be anti-dilutive and hence you’re required to scale it back to the basic EPS level. You will see that I’ve used the 6.4% figure in the press release as we believe it is a more reflective measure of real diluted earnings, though I would draw your attention to the pot-note outlining to correct IFRS treatment.

Finally on the income statement, earnings before interest, tax, Depreciation, amortization and share option expense for the quarter was $3.4 million.

I will now move on and talk about the significant balance sheet movements since the end of December 2015. Property plants and equipments have increased by 800,000 this is due to the additions of 1 million and retranslation movement of 500,000 being offset by depreciation of 700,000. In the same period, our intangible assets increased by 3.8 million. This was made up of additions of $4.3 million and retranslation movements of 200,000 and these are offset by an amortization charge of 700,000.

Moving on to inventories you will see that these have increased slightly from $35.1 million to $35.7 million an increase of just under 2%. We continue to build up Premier inventory levels in line with the growth in this business and in addition there with the normal increase in the levels of line inventory and preparation for the peak line season of December month ahead. It's a phenomenon that we see each quarter once. These increases were partially offset by lower HIV inventories which I’ve already mentioned earlier. Meanwhile trade and other repayable have increased by 700,000 to 26.3 million and this reflects slightly lower collections during the period, but overall the aging of our debt has remained healthy. Meanwhile, trade and other repayable including both current and non-current increased slightly from 21 million to 21.3 million.

Finally I will discuss our cash flows for the quarter. Cash generated from operations for the quarter was 1.9 million which is consistent with quarter one 2015. This was offset by capital expenditure in the quarter of 5.4 million which was lower than quarter four of last year and interest and taxes of 200,000 approximately. The other major cash movement in the quarter was share repurchases of 1.3 million. The net result is that we had a decrease in cash for the quarter of approximately 5.1 million with the quarter end’s balance being 96.8 million.

I’ll now hand over to Jim who’ll take you through the latest developments with regards to cardiac.

Jim Walsh

Thank you, Kevin. I’ll take the opportunity now to update you on our cardiac development programs. In particular today I’ll provide you with a detailed update on our Troponin FDA submission, given you an overview of our clinical trial data and also give you an update on recent communications with the FDA. I will also provide you with a brief update on Meritas BNP products, which as you know is currently undergoing clinical trials to support the 510(k) application.

So starting with Troponin, firstly, let me give you a brief reminder of the excellent clinical performance we observed in our U.S. trials. It's only six short weeks ago since I provided you with a very detailed review of our clinical performance data. So today I’ll provide you with a very high level reminder. It's probably easiest to explain our clinical performance by comparing ourselves to two of the market leading products currently approved and widely used in United States today, mainly the Abbott i-STAT point-of-care Troponin products and the Abbott architect central lab Troponin products.

According to the manufacturers package insert, the admission sensitivity of the current FDA approved Abbott Architect Central Lab System is 60% with a corresponding specificity of 95%. And in recent study carried out by Dr. Apple at Hennepin County, the Abbott i-STAT Troponin product was determined to have admission sensitivity of 32% with the specificity of 92%. In our recent U.S. clinical trials, the Meritas product demonstrates a whole blood sensitivity of 66% and a corresponding specificity of 94%; thus, beating the market leading i-STAT product by a 35 percentage points in sensitivity, while the Meritas also beats Abbott Architect Central Lab System by 6 percentage points in sensitivity. However, although these results look excellent for Meritas, you need to keep in mind that we’re still actually not comparing like-with-like.

In fact the Meritas MI patient cohort consisted of 57% type 1 MIs and 43% type 2 MIs. Whereas our competitors would have relied predominantly on type 1 MIs only. If we actually reconclude our clinical performance on type 1 MIs only, our time zero sensitivity rises from 66% to 75%, which is in fact substantially better than most of the data central lab Troponin systems. And although this is a very brief summary of our performance, it should serve to provide you with the confidence that the Meritas Troponin product is demonstrating exceptional clinical performance and when approved offers a unique commercial opportunity to Trinity Biotech.

Moving on now to our interactions with the FDA. You will know of course know that on December 17th we submitted a 510(k) application to the FDA for our high sensitivity Troponin products. This was the culmination of many months of clinical trial work in the United States. To the very best of our knowledge, Meritas is the first point of care Troponin products ever to be submitted to the FDA under the new guidelines. The complexity in terms of the new guidelines have raised the bar on clinical performance by many orders of magnitude. The guide line change of course has made the clinical trial very challenging for Trinity, however in the long run it may yet prove to be a huge advantage to us.

Following our submission, the FDA contacted us on December 23rd to confirm that they had received our application and that they had issued our application with a file number. Finally, in the third week of January with the initial administration process completed the former review process commenced and the review clock actually started ticking. Since then, there have been a number of informal communications with the FDA with relatively minor clarification questions as they work their way through our application.

Finally, some days ago and within the FDA’s published review process, we received the formal response to our submission from the FDA providing us with a detailed list of questions and comments.

I will take a couple of minutes now to address the type of questions and comments we received, however before that that and in order to rely any fears or consumes you might have, I would like just to say that all of the questions that we received are reasonable and fair. There are no show stoppers or red line items. The questions are more or less what one might have expected. The very good news is however that our pivotal ACS trail, which as you know consistent of close to 1,500 patients at multiple trials sites around the U.S.A. followed by a very complicated adjudication process received almost no comments. This would indicate that a trail was sufficiently powered, it represented the appropriate race and ethnicity profile. It has sufficient geographic spread and most importantly met the definition of an all-comers trial, within an appropriate mix of type 1 and type 2 MIs.

With that said I'll move on now to discuss the questions and comments in greater detail. The questions in general maybe segregated into three main categories. The first and by far the largest category. Our questions and comments where the FDA have asked for further clarification are more information relating to certain points. Essentially, these is information requested in order to ensure the completeness of our file. We are working diligently through these questions right now and hoping to get the necessary support documentation. It is worth pointing out that in order to provide answers to this category of question no extra data needs to be generated, it’s purity a paper work issue. This category question is not on the critical time path and provides more real technical risks.

The second category of question is where the FDA has asked for an extra data to be generated to support or expand certain claims. This work may be carried out in house by our own technical staff and again it's not on the critical path. Two examples of this type of questions are as follows. It is normal in submission for a diagnostic product like Troponin that one would provide a set of experimental data showing that common medicines or foods et cetera, do not interfere with the test results. Say common medicines like Lipitor or hyper tension medicines or any common food and beverage substances like coffee or alcohol.

In our submission we tested tens of -- many types of the common interfering substances. The FDA has asked us to let a few order impossibly interfering substances, which I think are relevant. This data can be generated in a very short period of time in house and does not pose a technical risk.

A second example in this category is that in our application we tested patients with hematocrit level ranging off to 50%. Hematocrit is a major of the concentration of red blood cells in one’s blood. Normal people have a hematocrit of around 40% and unique people would have much less than 40%. The FDA has asked that we expand that the hematocrit study to include people with up to 70% hematocrit. Again this area can be generated in house and poses almost no technical risk.

These are both examples of the type of extra data that has been requested. This data can be generated quite easily in house, in fact it's just extra work rather than -- with negligible technical risk.

The third category of questions is where the FDA has asked or has requested extra data to be generated, however in this case this data must be generated at external chemical sites. We had only one question in this category and it is in relation to our point of care precision study. The FDA has suggest that our data be enhanced to include three further sites and at each sites we should run 9 patient whole blood samples, ranging from high to low Troponin levels. Each sample then to be tested with one of the blood sample being taken. They have also just suggested that we run Troponin controls over the three week period at the same sites.

Here again there is more technical risk per say. It is purely a matter of carrying out the work and producing the data. Coincidently there may be a positive impact of this tedious request, as although the precision we had achieved in our original trial met the 2012 MI guidelines. As our manufacturing processes have become more robust. The product that we are now producing has even tighter CVs and should yield even better precision.

With that said we have already applied for IRB approval at three sites. We expect IRB approval in May. We will then produce the required data sets and resubmit to the FDA by the end of July. Because of the external nature of this data will be slowest to obtain and is driving the actual critical path. In summery therefore, we think the questions we received from the FDA are reasonably, fair and very importantly answerable. There are no red line issues and although we were confident that there would be no red line issues, it is always nice to see that to be the case.

We are now working diligently to submit a complete set of answers to the FDA by the end of July, which is well within the time allowed by the FDA. Once received the FDA will then recommence the review process. Pending on that review and of course depending on the type of follow up questions, if any, we believe that it is feasible that the Meritas Troponin products can obtain FDA clearance before the end of 2016. Accordingly Meritas which will be only point of care products demonstrating market leading clinical performance to be cleared for sale in the U.S.A. in accordance with the new MI guideline.

I’ll move on now briefly to discuss Meritas BNP. As you know BNP levels in the blood stream increase as the severity of heart failure increases. Thus BNP has emerged as a principal biomarker in the diagnosis of acute and chronic heart failure.

I mentioned on our previous call that following some discussions with the FDA last year, we agreed to expand our number of trial sites to 12. The adoption of this strategy we believe will help for a smoother review process with the FDA. The aim of the study is to recruit 1,450 patients approximately 700 with heart failure and 700 without heart failure.

At this time with the trial sites actively recruiting, we have set up to 70% point in patient recruitment. At our current enrolment rate recruitment is expected to be completed in Q2 with submissions of our 510(k) clearance in Q3 2016. We are quite pleased that the product looks -- the same high level characteristics have been observed in our CE marketing trials last year.

And with that, I conclude and hand back to Ronan.

Ronan O’Caoimh

Thank you, Jim. And I’m going to review our revenues for the quarter before open the call to question-and-answer session. Our revenues for quarter four were $23.5 million compared to $25.2 million in the quarter one of 2015. However, the impact of foreign currency exchange movements due to the strength of U.S. dollar against a range of currency is removed. Revenues would have been 24.3 million out of this quarter thus representing a decrease of 4%. Point-of-care revenues for the quarter were $3.3 million which represent a decrease of $1.3 million on a constant currency basis which is a decrease of 28%.

This decrease is entirely attributable to lower HIV sales in Africa during the quarter. This reflects irregular ordering pattern which characterized this market rather than any underlying adverse change in the nature of the business. As you know our HIV business in Africa is funded on entirely by NGOs. Product orders from these agencies tends to be haphazard and are unpredictable in the context of the 13 week reporting cycle.

Our HIV product continues to be regarded as the gold standard and continues to be utilized as the confirmatory HIV test of choice across virtually the entire continent, as it has done for the past decade. In addition, funding continues to increase as more and more Africans are put onto antiretroviral drugs with the number now exceeding 20 million. So despise this very disappointing quarter, we're confident of our African HIV business continuing to grow.

In the U.S. our HIV sales were flat over the prior quarter with hospital sales performing strongly aided by the fact that we're now starting HIV 1, HIV 2 combination product since we've got the HIV 2 FDA approval last year. And our public health HIV sales were down against the backdrop of reduced public health spending on HIV. As of point of cash, just as product in the U.S. were approximately $400,000 during the quarter, which is a huge increase on the current funding quarter last year, but the modest increase on quarter four sales. We believe that this product has large potential, both state and city public health department move slowly and the evaluation, training, funding and purchasing cycle takes a significant amount of time. We believe that this will be a $10 million product for us, but it will take 2 to 3 years to reach that run rate.

Moving onto clinical laboratory, our revenues for the quarter were $20.2 million, down 2% from $20.6 million in the corresponding quarter. However, on a constant currency basis, revenues were $21 million which presents a growth rate of 2%. Our hemoglobin diabetes and variance business performed strongly with revenues increasing 8% and strong premier instrument placements in all our principal markets with the exception of Brazil where we made negligible placement this quarter due to the weakness of the Brazilian real. However, we plan to reenter to this market when we increase the level of manufacturing activity in Brazil thereby saving on import duties and sales taxes and creating a natural hedge. In addition, we are seeking price increases against the backdrop of a high inflation environment. We hope to recommence placing instruments later this year.

Moving onto infectious disease, this business was down 3% on prior year, it continues to suffer from weak Lyme sales at the end of this Lyme season due to the previous harsh winter. The balance of the business performed well particularly in China. It showed how the weak quarter with revenues down 11% when compared with the current funding quarter. Immco performed well with revenue increasing 7%. During this quarter we increased the testing volume at our reference laboratory in Buffalo [indiscernible].

Over the past three quarters our Sjogren revenues have been approximately $600,000 each quarter. This quarter our Sjogren sales increased to $700,000. We believe that revenue will now continue to increase following the training of the 150 Bausch & Lomb sales reps. In general the strength of the U.S. dollar and the weakness of many of our customer currencies is causing us significant loss of sales. As an example our Russian sales were $1.8 million in 2014 and then the rubble has depreciated 60% against the dollar and our 2015 sales look like barely exceeding $100,000. The Turkish lira has dropped 30% and the Columbium peso has dropped 43% and of course the Brazilian real has halved, and all of these are important markets for us. If we invoice in U.S. dollars then our customer cannot afford our product. If we invoice in lira or real or pesos, then we can’t afford to supply, it’s proving difficult to grow our revenues against this currency headwind.

Undoubtedly, this has been a very disappointing quarter. However a number of factors need to borne in mind. This has been caused entirely by HIV in Africa, we're not losing market share and the market is not contracting. NGO orders are often haphazard and unpredictable and this 13 week cycle has been unkind to us in this quarter, another factor has been that in quarter one it is traditionally our lowest quarter revenue wise, with very low Lyme sales at the end of the Lyme season.

And another factor is that the coming 2016 Lyme season will be strong, and given the mild winter we just had. Lastly, just to say that with premier placements expected to the approximately 350 during 2016 with Syphilis sales growth and would Immco growth including increased Sjogren sales and that all this factors will drive growth in the coming quarters.

And now, I'll just hand back to the operator for question-and-answer session.

Question-and-Answer Session


Thank you [Operator instructions].

Ronan O’Caoimh

Hi Larry Solow is in queue to ask for question, Larry can you hear us?

Larry Solow

Just a couple of quickies, just on the Meritas, it sounds like -- just to confirm the only the potential variability, and I realize the exact filing date really given the day is not the major concern, but the only potential variability would be timing of just accrual in getting these three trail sites non-key party site complete, is that fair to say? And rest of the other data is sort of in your controlling house and should be done fairly soon?

Kevin Tansley

That’s absolutely correct Larry. Virtually everything can be done in house except the part of the bit that I outlined on the precision study okay. Now, it’s limited to three trial sites, so it’s actually limited to 9 patients sample as well, so it’s not a mega study. It will take us a couple of weeks to get the IRBs. We’ve already submitted to the hospital for the IRBs. And because we are not making any diagnosis, this is truly for precision, the IRB is process is fairly short and pretty lean. So we’d hopefully have our IRBs approved in the first week, second week of May. We then conduct the work, it's actually three weeks of solid work to do that and then we have to write it up et cetera, et cetera. So I’m hopping quite frankly that the same end of July is giving us a little bit of wiggle room there, but it’s not an expensive trial for that.

Larry Solow

I got it, I just wanted to make sure that you’re giving yourself a little bit of room there.

Kevin Tansley

The problem I'll tell you is, the only problem I can foresee is, what they’ve asked us to do is, is to take real patients with either with high, medium and lower Troponins. And so somebody with 200 somebody and somebody with 100 and somebody with a 20, if you like. So it’s often hard just on the day your there to get the guy with a 50, he might be three 30s and there might be a bunch of 100s. So there is a little bit of selection work to be done, but it’s not a big deal.

Ronan O’Caoimh

But Larry, just to remind you, as Kevin just said earlier, they we’re quietly pleased about this because it will enable us to showcase our improved CV performance.

Larry Solow

Right, so at the end of the day hopefully this actually benefits you guys for the label and all, so it will hopefully be a high pass problem. And these three sites, were these -- are these former sites, where we did other study?

Ronan O’Caoimh

We're using two former and one new one actually, because the IRB process it's open. We wanted to do it quickly, so -- but it is that they are all guys who know what they're doing Larry.

Larry Solow

Good, that’s okay great, good to hear that. And just a couple of quickies on the operations, Ronan in terms of HIV, I know it’s inherently a lumpy business, yes, you had a little lump last year too and may be sales are flat or slight down year-over-year even though, you think they are still growing, is there any chance you make up some of these sales in the coming quarters? What gives you confident that may be there is a slowdown for several quarter in a row, maybe not as quite as this low, but do you have any color on that?

Ronan O’Caoimh

I know that we had a miss last year in quarter two when HIV came in low in Africa as well, but despite that I just think we’ve been just dipped into a poor 13-week cycle there. If it had been a 14 week cycle, an extra week it would have been fine, that kind of thing you know. So I just think the reality is that HIV -- our HIV revenues don’t just do us a favor of coming in equal every 13 week period.

Yes, I think probably it will come back, I think probably quarter two will be stronger, but nothing as lower from back then. But I think over the longer period it will all equalize and so it’s just one of those things and reality is what it is, the revenues just are haphazard.


The next question is from Nicholas Johnson at Raymond James.

Nicholas Johnson

First, I want to talk a little bit about the balance sheet, obviously you’re guys raised capital about a year ago from the convert. We haven’t seen any M&A activity, certainly I would expect valuations to potentially adjust given the end markets and considering some of that’s going on in the capital markets. But just wanted to get your thoughts on M&A, where we stand, and is it likely that we see something this year from a deal perspective?

Ronan O’Caoimh

Nick I think I am certainly hoping that you will see something this year, and we continue to seek out acquisition opportunities. Yes, I think that we’re going to see valuations become more civilized. But although having said that, we would have also been shown that recent Magellan acquisition that Meridian did and we would have taken a view that it was too pricy, it's over four times revenue itself. But as I told it’s a matter perspective, but certainly that was our perspective. But we continue to seek out more and more acquisitions and we will certainly be hopeful of finding something that may not be with the history over the years as being able to identify and close deals, and this is a new experience for us to have sourced an acquisition for such an extended period of time without success. So I think we will get there, but we’re just mindful of not overpaying.

Nicholas Johnson

That’s helpful, and then my second question would just be on overall consolidated organic growth. Obviously, it's been a little bit lumpy over the last few quarters certainly HIV in Africa plays a role in there. But I am of the understanding that you finally cycled through some more easier comparisons beginning in the June quarter. So I just want to get a better sense of your thoughts on can you deliver consolidated organic revenue growth in the back half of this year irrespective of what goes on with that back from here? Thanks.

Ronan O’Caoimh

Well, I think in my prepared remarks I made reference to that I think that yes that I think we can and I believe we will. And I think this particular quarter was just a particularly weak one. It's traditionally the weakest in any event. And then you had -- you just had a very poor week of HIV sales. So yes I think that the rest of the year will be much stronger, and I think we’ll benefit as I indicated from additional Sjogren and also immune business submitted, additionally Syphilis. And from the content and maybe just clocking away with the placement of the new premiers and I can think of back on then it was stronger as opposed to what we’ve had this year, it was very-very weak. Lyme seasons will be stronger this year undoubtedly. And in addition to that, we should get some price increases in Brazil and the currency has -- the Brazilian currency has come back from 4 to I think 3.55-3.60 [ph] over the last few days. So, yes absolutely we believe that our revenues will grow organically through the rest of the year.


The next question is from Bill Bonello with Craig-Hallum.

Bill Bonello

Ronan I am wondering if you can just comment a little bit on the broader environment, obviously with Abbott planning on acquiring Alere, there is the potential for disruption and in lot of the markets that you play in, there has been some switches in the HIV market in terms of some of the providers there and what distributors you’re working with. And just wondering, if you see sort of a unique opportunity right now in the marketplace to take share because of some of this disruption and any other journal commentary on the environment?

Ronan O’Caoimh

With respect to HIV I mean clearly now with Alere being the goliath in African HIV, Abbott now becomes -- takes over that space. What’s happening up to now is that Alere dominates screening and we dominate -- we entirely dominate confirmatory. And I don’t really see much change happening there, I mean I don’t know exactly what Abbott’s plans are, I assume they won’t divest this and so I don’t see much change there. And of course when you refer to some distributor changes, we haven’t actually has any distributor changes. So I am not sure what you mean there.

So in that sense I don’t see really much difference unless Abbott were to surprise us by divesting, bear in mind that we have developed a new product which we haven’t talked an awful lot about and which is a new recombinant based rapid HIV test that with enable us to enter the screening market and of course that remains our plan. To move on then to cardiac I mean clearly the two major incumbent space in world rapid Troponin testing are number one and Abbott’s with i-SAT, number two, Alere with their trial spot and of course now Abbott’s acquiring Alere. So that’s going to give them basically about 100% of certainly in the U.S. and Troponin point of care market.

And it's possible that there’ll be some activity in context of monopoly and they will be forced to divest something. I suspect that won’t happen because it's not a huge segment. From our point of view it means that instead of batting two companies, we’re batting one, I mean it's pros and cons there, certainly we would have perceived Alere as being, from a controlling perspective being a company with problems, but I think the pros and cons. I think overall it doesn’t make an awful lot of difference.

I mean what we hope to do is, we hope by the end of the year to enter the markets with a guideline compliance products with performance that's we wants to see and ahead of the market leader with pace would be -- with it with both of its products as we have much better sensitivity, with much better specificity and with much better CV and with guideline compliance. And we think that's going to basically be a very strong combination that can do very well in the markets and it just happens that we would be competing only with Abbott, not Alere as well. And so on the balance I'd say marginally positive in our favor.

Bill Bonello

Okay that makes sense and then just on the distributor side, I was been talking about you always talking about Chembio kicking back the sales of its own product and Alere.

Ronan O’Caoimh

Yes well just to be able to -- again that hasn’t really made much of the difference that we can see. I mean that piece if December was only 6 million piece for us in any event and just we've said if possible, probably about 2 million is sold into public health, we are really not feeling much difference. I mean really from our point of view whether Abbott -- whether Alere is selling the product or whether Chembio themselves it, doesn’t make a huge amount of difference to us, you know.

Bill Bonello

Just as a follow up and maybe also a little bit more color on what you see happening in the A1c market whether you are seeing the kind of because you talked about 8% growth whether you are seeing that kind of consumable pull through even what kind of uptick you are seeing in Europe just anything of note on Premier?

Ronan O’Caoimh

Yes, I mean just I would take advantage of your question just to clarify something. When I say we've got 8% growth in our hemoglobin business of course, what actually we have is we have no growth in our traditional variant business and with 16% growth in our in hemoglobin A1c business. So the Premier is doing extremely well but bear in mind it is a legacy business which does okay. We’re now about to launch our new instrument and I think it will do quite well it can do very well and that will be close but just bear in mind that it was the legacy business which is fairly static and then you got the Premier business going very well. So the actual growth of Premier is more like 16% and given that the two components are more or less of equal ties at this moment in time.

In terms of how it's doing, I mean it's sort of very well obviously it's stressful to be in a situation where there is huge amount of Brazil and we can't satisfy it because of the real has halved in value. But outside of that and our partnership with Manaswini [ph] is moving on very well and in due course we will enhance 40% of the European market and that is basically -- that is happening in the U.S.A. which is largely and I’ll say we’re doing good, were doing well but bear in mind there is only a certain percent of the entire market available to us and in China we are placing insurance at a very impressive rates, but as we’ve shared with you in the past our concern is that amount of each instrument -- the amount of tests run annually on each instrument isn’t what we were hoping, but it is certainly growing and growing quickly and I think when we get there it's just the matter of when and the background to that is, is that Chinese GPs, general practitioners aren’t all tuned into the advantage of the hemoglobin A1c test in for diabetics, but they are progressively becoming more so.

So what's actually happening is that ourselves and BIO-RAD and Tosoh and Arkray who are the four players in the world, who are all basically involved to the extent in the lands grab of trying to get our instrumentation in place in the Chinese hospitals to take advantage of the avalanche of business sale will inevitably arrive and all of those Chinese diabetic of whom there are like if you take type 1 and 2, 19 million, when they -- at the point of which they are all basically been tested for A1c four times per year. And so in the event that -- so it’s all going very well, obviously the concern with Brazil and we have an action plan to particularly back into that markets.


The next question is from Walter Schenker at MAZ Partners.

Walter Schenker

Just really two questions. First if we were to understand that the FDA to the best of your knowledge has reviewed the full component filing and therefore at this point this the list of questions you received were all they came up with -- after doing the due diligence a review of the whole file they didn’t stop halfway through and come up with a list of questions or something like that?

Kevin Tansley

Hi. Walter you are absolutely correct. This is a further review of our full filing document and the list of the questions we have range across the full documents. So it is not a partially review and a stop. This is a full review and a full comprehensive list of questions on the full documentation.

Walter Schenker

Okay. So that's the main reason you feel kind of seeing everything they’re sending backwards, so comfortable never knowing that the FDA of what they come up with to this point?

Kevin Tansley

[Multiple Speakers] It is very encouraging for instance, I said in my statement that it was encouraging that the ACS trial it was undoubtedly the most complex trial ever undertaken by Trinity Biotech. We got one question on it and it was a clarification question, the 99 percentile trials for the normal, I don't believe -- I can't remember the bit between -- no question of [indiscernible]. And it’s in those areas where we see other companies have been thrown out to date.

There a lot of companies having to have go through the reviewed and essentially they were told to rerun the trials. So that’s what gives us some comfort, there is a full review and the questions we got are the questions I guess, okay. What will happen next is when we put in our answers, I am assume it will lead to another round of questions, they will try and understand our answers to those questions, but theoretically with the fair wind that should be it, it will be down to ideally down to labeling issues and that type of discussion then. That's definitely an idea world, obviously can't guarantee that, but that’s what’s all that should happen.

Walter Schenker

And just one sort of general question, when one looks at the 20-F, you forecast various developmental spending for 20 -- you showed ’15 and showed ’16, there is 10 different products or programs, I made up 10, where you're spending enough money to put it in the 20-F, are there any those that we should be specially cognizant of or specifically eye on which we haven’t discussed as to a whole bunch of new different types of tests?

Kevin Tansley

Most of the -- Walter, Kevin here, I think most of those projects you’d be very familiar with and they are obviously concentrated on the Troponin area and there will be separate project there for cardiac, aerobics, Troponin, D-dimer and BMP. We don’t have the device itself, the projects there on that and similarly then in relation to the diabetes side we've been enhancing our instrument there and with the new version usually coming out there in the near future as well. So there are a range of projects in there, but there is a level of granularity you're seeing in the 20-F, is probably we tend to group through maybe more so when we're talking on the call, I don’t think you’ll be familiar with all of those virtually.


The next question is from Ross Taylor from Somerset Capital.

Ross Taylor

Most of my questions have been asked, but could you go into little bit more depth and how you've seeing -- see yourselves adjusting your operations so that you can sell into Brazil, that you can potentially sell into Russia with currencies that might well stay weak for some time?

Ronan O’Caoimh

Yes, Ross, frankly in terms of Russia, I mean I think there are political issues involved here also. I mean the extent to which our business has collapsed there isn’t just attainable to currency. I think it comes right from the top directive, which basically is discouraging importation. But today with Brazil and which is very significant for us and apart from riding candid and hoping that the real will actually strengthen, I guess that it has done, it has kind of come from 4 back to 3.50. I know it’s 3.60 now, but and I think that we are also having an inflationary background so as an example we have to give it -- and we have no choice so you have to give 12% salary increases to our people in Brazil recently and so again that to back 15% inflation background so that will enable us to get price increases.

And beyond that what we're doing is at the movement we're using a contract manufacturer to do some of our manufacturing products but not extensive amounts of manufacturing and that enables us to basically save some and some transportation cost because there is an awful lot of reagents of water basically or heavy reagents used in the preliminary testing. So we save on transportation cost which are quite expensive in Brazil, but we also save on duties. And however if we were to move manufacturing ourselves which is what we’re endeavoring to do, there are certain provinces in Brazil where there is a significant VATs, sales duty taxes which is available. And so the VAT in Brazil about 28.5%, but there is a 17% component of it which drives off the entire organization if we would manufacture in Brazil and we're endeavoring to take advantage of that.

So to setup a modest factory instead of basically having contract manufacturing done for us and the benefit will be that you will continue to save, where you get additional savings on the import duties which could be around 17% although it can be higher and then you'll get a 17% VAT or sales tax break as well. And so a combination of those factors those two factors and an inflationary background which should be up for price increases, should make a significant difference and of course fourth factors would be if significantly currency where to strengthen And I think look how much we've seen with President Rousseff and indictment and all of that and the way that parliament voted. I mean I think that is actually being proceed as a positive for the international community i.e. that the councilor got all to, that process all to involve stronger currency. Although I know it’s much extra there. So the first thing we had hoped for was give us -- will enable us all to back in there and just to remind you in our first year in Brazil, we placed 131 instruments. So we took the market by storm and we could place another 121 more instruments at this year, but we would make any money at the current rate. So we’ve had to temporary withdraw.

Ross Taylor

Okay also when you announced the buyback in place of the dividend, I think that it was viewed by many new investors as positive. That said, I got a number of comments this morning from people who felt the pace of the buyback was rather anemic, can you explain or talk or tell us how aggressive are going to become, I mean you're looking at a story, you guys seem very confident what’s going on, obviously you have a ton of cash on the balance sheet. A more aggressive buy back but probably built from goodwill with your investors who felt the little flustered with the convertible offering year ago. So I was looking at this where you put $1.5 million in where the year before you then went about $5.5 million on a dividend, just seems that somehow shareholders, we haven’t quite gotten what we’ve given up yet, so can you address that?

Kevin Tansley

Just to say that, obviously we’re only in the position to buyback for a limited period of time because we only announced our results six week ago and then we went into a closed period of 31 March. So we were only actually able to be in the market for only two weeks, our last two weeks and two and a bit week, so we’ve bought back $1.5 million worth of stock, which I know wasn't significant. And the issues for us are that there are constraints on what we can buy, we can't be the first buyer and we can’t be the first place, we can’t be the last. And we can basically buy I think 25% in the moving average excluding what is outlined.

So basically there is a limit to what we can buy. Now we can buy blocks and we will endeavor to buy block, so we didn't actually get any in the short period of time we were in the market. But just to be very clear Ross, we are committed to a buyback and we think that a buyback makes compelling sense at the prices that we find ourselves at this moment in time. So you'll see us buy aggressively and as soon as we can go in, I think we go back in tomorrow. It's a 36-hour -- maybe I can't remember, 48 hours we can go back and we will be straight back in. So you'll see us in the market and we would buy aggressively and more aggressively. So basically we only were in the market for very short period of time, we have to check the market again and tell you first. I know we could have put a plan in place but we chose not to at that stage. So we can put a plan in place. We could have been in the market for the past 3 weeks.


The next question is from Chris Lewis, Roth Capital Partners.

Chris Lewis

Just a couple of follow ups on the simplest point of care product, can you just provide an update on where you are in terms of getting those public health departments on board. Ronan, you've talked about that being a $10 million dollar product within 2 to 3 years, so when you think you’ll start to see more of an inflexion point in that business?

Ronan O’Caoimh

I think soon and although I mean soon is the answer, we're beginning to see bits and pieces coming through, but just the whole process from training to evaluation to funding, purchasing and it just seems to be such a slow process. And I know it’s frustrating, but we actually are going through that process at virtually all the state as we speak. And so we do believe we can get the kind of quantum that we said in the timeframe to set. But it’s got a slow -- it’s a bit of a slug frankly.

Chris Lewis

Understand and premier, can you tell us how many placements do you have in the quarter and how many placements you’re expecting for premier for the year?

Ronan O’Caoimh

With 85 this quarter and we’re hoping to do 350 plus for the year. To remind you, we did 460 last year and the difference really reflects the fact that we came out of the Brazilin market. So that’s 350 within, I think 350 may be hallow over that. It depends on when we get really me get really back into the Brazilin market property. If we do we'll exceed that number comfortably.

Chris Lewis

Got in and then on then on the gross margin side of things, talked about the under observation of fixed every head and some unfavorable product mix it’s been around 42% the past two quarter, how should we think about gross margins going forward from here? Thanks.

Kevin Tansley

The couple of things, the couple of those one off features in the last couple of quarters we said our 43% if you remember last quarter the margin was impacted by a requalification concentrated within quarter four itself, you were getting four times the impact in one quarter. So if it wasn’t for that the margin would have been in or around 44% and 45% that sort of number, but for the absorption issue this quarter, it would have been somewhere between 44% and 45% again, so that’s roughly where I would be thinking of us.

Obviously the big driver margin however for margin from our point of view will be the extent to which the top line grows and that has a direct correlation between top line growth and margin improvements took in very heavy fixed cost nature of our cost base of such and you’re seeing it particularly this quarter and what is happening in relation to the HIV production per say.

Okay. Could we just have the, I think the last question is Larry Solow. And I will update and then we’ll finish.


Okay. We have Larry Solow from CJS Securities.

Larry Solow

Just two quick follow-ups. Just on the SG&A you mentioned there is some, it sounds like that those translation expenses those non-cash stuff is that basically balance sheet to stuff that move in the currency don’t know really what that is, on the SG&A?

Kevin Tansley

Okay, Larry, Kevin here. Yes, that’s exactly yes that will certain part denominated, balances, recharges, recalculaters at the start and at the end of each quarter. And that’s what you’re seeing there. So hence it's a non-cash so it's a noncredit foreign [indiscernible].

Larry Solow

$400,000 something like that?

Kevin Tansley

Approximately that number, yes.

Larry Solow

Okay, I didn’t get that clearly you sort of put in and below the line too, I know some companies put that up on the other line, but that’s okay. And then lastly just on Immco. I know when you guys acquired it you viewed it as a 20% annual grower. It's obviously been a little -- it has been a little shy of that, is that all mostly due to Sjogren's slowness in the ramp because of the transfer to Bausch & Lomb, or are there other issues there? Thanks.

Ronan O’Caoimh

Larry, Ronan here. Well, it's not so much as other issues, I mean yes I think in the first year we did get 20% growth out of it and this year we may not I mean in this current quarter we’ve got 7%. But I think certainly if Sjogren were doing better we’d be getting closer to the 20%, but the 20% was aspiration and overall I mean it’s an aspiration that we continue to have. But in overall terms I think we have to characterize in close performing well and we do see it as a niche, but with that we can really grow into. And it is an ideal niche for us, and we think that also immunity is a good space to be in and we think this is going to be big for us in time and this going to be another Premier. So we’re very enthusiastic about this, but we’re just not quite getting 20% right this quarter this fast. But we’re very optimistic on it, we like the business a lot.

Ronan O’Caoimh

Okay. And thank you very much and I think at this stage we will close the call and thank you for your support and look forward to talking to you next quarter. Bye-bye.


The conference is now concluded. Thank you for attending today’s presentation, you may now disconnect.

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